Complementary Effects of Information Technology Investment on Firm Profitability: The Functional Forms of the Complementarities

Abstract

This paper focuses on developing economic theory on the interrelation between information technology investment components. Three functional forms to model the joint effects between components of investment on firm accounting profitability are identified and empirically tested. The results suggest that the complementarities between components of IT investment can be best modeled by using the multiplicative functional forms, providing a framework to model the joint effects of different factors that impact firm profitability.